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On Ukraine's economic and political transformation since 1991 and its key pitfalls

Mr. Acemoglu is the Killian Professor of Economics at MIT, where he focuses primarily on the field of political economy. As the author of hundreds of articles in refereed journals, Mr. Acemoglu is the most cited economist of the past 10 years and the third most influential economist according to IDEAS/RePEc. He is also the author of four books, including The New York Times bestseller Why Nations Fail: Origins of Power, Poverty and Prosperity (2012). He has twice been named to Foreign Policy’s Top 100 Global Thinkers and received numerous awards, including the recent Knowledge Award in Economics (2017). Among numerous other positions which he holds, he is the recipient of the Andrew Carnegie fellowship, previous Editor-in-chief of Econometrica, and elected fellow of the National Academy of Arts and Sciences, the Econometric Society, and the European Economic Association.


1. Ukraine has had all prerequisites for economic growth (e.g., people's capital, abundant natural resources, strong science research base) and was ahead of many Eastern European nations after the collapse of the Soviet Union in 1991. Why our political elites have failed so badly to transform our country into a prosperous one in almost three decades?


I think there are three important factors to understand the dismal economic performance of Ukraine. First, despite many favorable things going for it, Ukraine suffered more than most of the places after the collapse of the Soviet empire, because its main markets for industrial products disappeared. But this could only account for a temporary setback. Second and more important is the nature of the political transition in Ukraine. In this, Ukraine followed the pattern in most Soviet republics and satellites (but notably not in Poland or the Baltics), where independence was led by former communist party leaders who reinvented themselves as nationalist politicians. These politicians managed to monopolize power and create a system that was under their control and heavily extractive, as exemplified the dominant role that oligarchs have come to play in the economy. Third, the political situation in Ukraine evolved differently than many other Soviet republics because rather than one faction of the communist party elites controlling power, an incessant and destabilizing competition between different factions ensued, creating more instability and uncertainty. As a result, Ukraine has done even worse than places like Kazakhstan, where the extractive system created by former communist bosses at least wrote some stability.


2. What are the critical reasons that unlike other countries from the Soviet bloc like Poland or the Baltic States we have moved in the opposite direction in terms of inclusive society?


Building on my previous answer, the reason is all political, but it also has historical roots. The closeness of the Ukrainian Communist Party to Russia, even if the Bolshevik structure was highly suspicious of Ukrainians, probably made a transition empowering former communist party bosses more likely.


3. Is the formation of an oligarchic-state model of control over economy and politics since the early 1990s the leading cause behind strengthening the extractive model of economy impeding our country's genuine economic and political transformation?


Yes, but the instability added by the role of the competition and distrust between different oligarchic factions is not to be ignored in this. Over the last decade and a half, the interactions with Russia have also further contributed to instability in the country.


4. Do you see any signs of gradual transition of Ukraine from extractive economic and political institutions towards inclusive ones after the Revolution of Dignity that took place in 2014? What is your opinion on Poroshenko's tenure and if there were any substantial positive steps taken to ensure such a transition?


Yes and no. On the one hand, I see a much greater recognition of the fundamental problems of Ukraine. In fact here, I think Ukrainian citizens are better than foreign experts. Foreign experts keep on talking about corruption. But corruption is a symptom of a deeper extractive economy. If you managed effectively ban corruption but the extractive system, with monopolies and limited opportunities for people remain, you will not getting closer growth.


I get the feeling from my conversations with Ukrainians that they understand the system is rotten and needs to be changed more fundamentally than just attempting to remove corrupt practices. I also see Ukrainian society as being very active and engaged, which is very important. Inclusive institutions are not bequeathed by elites or bureaucrats. They are demanded and constructed by the people themselves. I believe people have developed an instinctive understanding of this and Ukraine. There are good signs in this regard and Ukraine.


But also no. Despite these hopeful signs, progress has been very slow, uneven, and sometimes backwards. I think it is hard for an oligarch to uproot the oligarchic system. More fundamentally, good intentions and energy are not sufficient. You also need fundamental, deep-rooted institutional reform, and that hasn't really started in Ukraine. Look at the judicial branch. It is in need of a complete overhaul, but it hasn't happened, and it is not clear who will do that?


5. What is your opinion on the newly elected President Zelensky and his team? Is there a possibility for effective reforms implementation with the newly formed government in Ukraine, and what obstacles can prevent them from doing so?


To me, Zelensky is a bit of a black box. It is hard to know what he will exactly stand for. But he has appointed some good people committed to reform and openness.


But more important than the President at this juncture is Ukrainian society. Ukraine's society, and especially Ukrainian youth, has shown time and again that it has a thirst for more democratic governance and willingness to get engaged in politics. They are brave, mobilized, and informed. Unfortunately, however, so far the institutional basis of its more systematic participation in politics has not been created. People pour into the street and can make their voices heard, but once they go home, the old oligarchic equilibrium gets re-created. But perhaps it is third time lucky for Ukraine.


There is a better understanding in Ukrainian civil society today that it is not sufficient to pour into the Maidan. More than that is needed. We need society to work continuously to keep politicians accountable, shedding light on backroom deals, and putting pressure on politicians to deal with corruption and lack of competition in the Ukrainian economy. I think it would be foolish to be wildly optimistic, but I think there may be room for being cautiously, very cautiously optimistic.


6. How can Ukrainians make politicians and the bureaucracy more accountable? Do you think there has been any substantial progress in this direction since 2014?


This is the 10 million dollar question. There is no easy answer, and I don't think the progress since 2014 is satisfactory. You need better and more independent media that is trustworthy. You need more civil society oversight. You need independent, modern and autonomous judges, and more resources in the judicial sector. But much more is needed.


Solving the problem of corruption and creating accountability requires tackling three levers at the same time: laws, norms and opportunities. If there are no good laws that can uproot corruption and make politicians and business leaders liable for unethical or criminal behaviors, you cannot create accountability. If norms don't start changing, making corruption illegal wouldn't be sufficient. You also need to change norms and make it socially unacceptable to engage in corrupt, backroom deals. Finally, you also need to change opportunities. If there are ample opportunities for corruption and grabbing rents, for example, because the economy is highly monopolized or there are cozy energy deals to be made, it is very difficult to prevent misbehavior.


7. Has the recent break away from Russia's political and economic influence and move towards closer integration with the EU brought our country any noticeable political or economic benefits?

Yes for several reasons. First, I think economic deals with Russia, especially in the energy sector, were one of the contributors to opportunities for corruption and monopolization. Second, closer links with the EU have been important for Poland's reform process acting as a carrot and providing opportunities for importing technology and best practices for the bureaucracy. The same will be true for Ukraine.

© 2019 by the UAinFocus Platform

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